Monday, February 23, 2009

Alternative Investing Solutions for a Declining Economy and the Receding Hope for the Future

While many of the world is in a frightened state as to what the future holds and where to invest their money I see this as an opportunity instead of a threat. That opportunity being to throw those aside who greedily risked honest peoples' monies for their own selfish gain. I see the developing world as the new frontier in investing, it is a place where the culture and the technological factors beg new investment programs. Programs which leverage the Internet and enable businesses to grow from the ground up.

Just think of it like this, if 2 percent of the world owns half the wealth in the world and financial intermediaries seek only to make those 2 percent richer, the scale is then imbalanced and it hurts everyone in the long run. On the other hand, if say the other 98 percent of the world finds a means to grow itself out of poverty, then positive growth has no where to go, but trickling upwards.

It seems a sweet irony that only in the past couple of decades it has become the most feasible to take this course. For example, an organization called Grameen Bank, started by Muhammad Yunus, participates in micro-loans for the impoverished masses in Bangladesh for the purpose of eradicating poverty. This organization also fosters growth in the Bangladesh economy from the ground up, and has had more success than financial firms in America in the past year or so. In the thirty-one years of operations, Grameen Bank dealt with 7.2 million borrowers, 97 percent women, and the borrowers essentially own the bank. Also Grameen Bank has dispersed loans totaling $7.59 billion and $6.76 billion has been repaid over its history. That is approximately 90% fulfillment of debt obligations, where as according to the 2008 credit card survey the average default rate in a basket of 22 issuers and 38 credit cards was 26.87%.

That is 2.5 times as much as the default rate for the borrowers from the Grameen Bank who are poor and cannot get loans from traditional banks because they are not “creditworthy” in the eyes of the financial world. The numbers do not lie, just in financing the poor there is a higher success than financing the rich, who strive to only get richer. Social innovation and enterprise does pay off, a person can do well by doing good, and by investing in the developing world like it seems the investing masses should, there can be mutually beneficial impacts.

Driving the focus on to ways an average person can invest in positive social change while earning a decent return for their troubles, I present MyC4. It is a company similar to a hybrid between Grameen Bank and Ebay. Basically it provides the service of getting capital for SME (small to medium enterprises) in the African continent through a bidding process. The investors get to bid through a highly transparent bidding process via the web. They pick the desired return rate that is capped at about 25 percent and the entrepreneur pays the weight average of the lowest bids, with MyC4 taking a small portion of the return (about 3 percent). This program allows for the borrower to get the financing they need for their business, while allowing the investor to make a positive return, and the default rate for MyC4 is only 2 percent which is amazing. In only its first six months of existence it has gained 6.5 million euros in investment for 3,700 African businesses from approximately 12,800 investors in 83 countries.

This program is a social enterprise that enables good returns and is helping the cause for growing the developing markets in the world while insuring strong returns. I perceive this as a much more viable source of investments for worried investors throughout the world especially in the USA. It is a safe bet that there will be more programs like this in the future and people will learn the sensibility in social investing and enterprise.


1 comment:

  1. It is interesting to witness the fusion of a technology-oriented culture and developing areas through what should have been a readily apparent interface. Though we tout globalization as readily prevalent, I like to believe we are far from it, for reasons such as these. Within each culture, it is accepted that investment opportunity is limited to those with excess. When globalization has truly penetrated, our expansive middle class may finally understand that though their investment opportunities within are limited, abroad they are widely available. Communication technology is the first step, and it is excellent to see it put to a use beyond allowing me to check my e-mail in the kitchen. It will take cultural--not technological--in-roads for the balance of wealth to shift, and this article is not a bad step forwards. Keep 'em coming!